Alibaba Cloud (AliCloud), a subsidiary of e-commerce powerhouse Alibaba Group, is forecast to record revenue of nearly US$9 billion by 2020, closing the gap on global industry leader Amazon Web Services, and becoming a key growth driver for its parent.

“The foundation is set to transform Alibaba [Group] into a leading data commerce company,” Morgan Stanley equity analyst Robert Lin wrote in a new research note.

“We value AliCloud at US$39 billion ... and our new revenue forecast for AliCloud implies faster growth than that of Amazon Web Services.”

Shares in New York-listed Alibaba rose 2.76 per cent to reach US$76.28 at the close of US trading on Tuesday, after Morgan Stanley raised its target price for the world’s biggest e-commerce company to US$130.60 from US$119.30.

Philbert Shih, managing director at Canadian firm Structure Research, told the South China Morning Post earlier this month that his firm was projecting substantial growth for AliCloud “that would already be right at historical record highs for the cloud industry”.

Structure Research estimated AliCloud to post revenue of US$7.08 billion during parent Alibaba’s fiscal year to March 31, 2020.

The foundation is set to transform Alibaba [Group] into a leading data commerce company

Robert Lin, Morgan Stanley

But Morgan Stanley is more aggressive in its forecast for the operation, suggesting US$8.72 billion revenue by 2020, which is similar to the US$7.88 billion posted by Amazon Web Services last year.

The narrowing of the gap between the firms primarily reflects AliCloud’s “concentrated geographic presence in China in the next few years”, Morgan Stanley’s Lin said.

He added that AliCloud only started to make its broader product offering commercially available in 2014, “implying ample revenue growth opportunity”.

Founded in 2009, AliCloud operates the network that powers parent Alibaba’s online and mobile e-commerce businesses, and supports the merchants on those platforms.

The company, formerly known as Aliyun, has since become mainland China’s largest cloud infrastructure services provider, with more than 2.3 million domestic clients as of March 31.

Cloud computing enables companies to buy, sell, lease or distribute online a range of software and other digital resources as an on-demand service, just like electricity from a power grid.

These resources are managed inside data centres. “Cloud” refers to the internet as depicted in computer network diagrams.

Alibaba, which owns the Post, reported last month that AliCloud saw a 138 per cent increase in revenue in its fiscal year ended March 31 to 3.02 billion yuan (HK$3.52 billion), up from 1.27 billion yuan in the previous fiscal year.

Lin said AliCloud had 500,000 paying clients, including half of the top 35 Chinese “unicorn” internet companies – start-up firms with a US$1 billion valuation as determined by public or private investment.

AliCloud this year launched its “Max Compute” big data platform, which allows users to process 100 petabytes of data – equivalent to 100 million high-definition movies – within six hours.